Weekend Reading: You Have Been Warned

Tyler Durden's picture

Authored by Lance Roberts via RealInvestmentAdvice.com,

Investors aren’t paying attention.

There is an important picture that is currently developing which, if it continues, will impact earnings and ultimately the stock market. Let’s take a look at some interesting economic numbers out this past week.

On Tuesday, we saw the release of the Producer Price Index (PPI) which ROSE 0.4% for the month following a similar rise of 0.4% last month. This surge in prices was NOT surprising given the recent devastation from 3-hurricanes and massive wildfires in California which led to a temporary surge in demand for products and services.

Then on Wednesday, the Consumer Price Index (CPI) was released which showed only a small 0.1% increase falling sharply from the 0.5% increase last month.

This deflationary pressure further showed up on Thursday with a -0.3 decline in Export prices. (Exports make up about 40% of corporate profits)

For all of you that continue to insist this is an “earnings-driven market,” you should pay very close attention to those three data points above.

When companies have higher input costs in their production they have two choices: 1) “pass along” those price increase to their customers; or 2) absorb those costs internally. If a company opts to “pass along” those costs then we should have seen CPI rise more strongly. Since that didn’t happen, it suggests companies are unable to “pass along” those costs which means a reduction in earnings.

The other BIG report released on Wednesday tells you WHY companies have been unable to “pass along” those increased costs. The “retail sales” report came in at just a 0.1% increase for the month. After a large jump in retail sales last month, as was expected following the hurricanes, there should have been some subsequent follow through last month. There simply wasn’t.

More importantly, despite annual hopes by the National Retail Federation of surging holiday spending which is consistently over-estimated, the recent surge in consumer debt without a subsequent increase in consumer spending shows the financial distress faced by a vast majority of consumers. The first chart below shows a record gap between the standard cost of living and the debt required to finance that cost of living. Prior to 2000, debt was able to support a rising standard of living, which is no longer the case currently.

With a current shortfall of $18,176 between the standard of living and real disposable incomes, debt is only able to cover about 2/3rds of the difference with a net shortfall of $6,605. This explains the reason why “control purchases” by individuals (those items individuals buy most often) is running at levels more normally consistent with recessions rather than economic expansions.

If companies are unable to pass along rising production costs to consumers, export prices are falling and consumer demand remains weak, be warned of continued weakness in earnings reports in the months ahead. As I stated earlier this year, the recovery in earnings this year was solely a function of the recovering energy sector due to higher oil prices. With that tailwind now firmly behind us, the risk to earnings in the year ahead is dangerous to a market basing its current “overvaluation” on the “strong earnings” story.

Don’t say you weren’t warned.

In the meantime, here is your weekend reading list.

Trump, Economy & Fed

VIDEO – It’s A Turkey Market


Research / Interesting Reads

“The only function of economic forecasting is to make astrology look respectable.” – Sir John Templeton

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cossack55's picture

That would at least be a start

Escrava Isaura's picture

“The only function of economic forecasting is to make astrology look respectable.” 

This quote is by John Kenneth Galbraith and not Sir John Templeton.


Manthong's picture



How could anybody object to a Brown Swedish Burkini team?

yogibear's picture

Lance Roberts?

Who is this fool?

rlouis's picture

That's interesting, whether you are right or not.  I've been convinced for a long time that the elites are as likely to suffer the idiotic consequences of dumbed down schools and cutbacks in important govt. services as the rest of us.


"At least four people have been killed in a mid-air collision between a helicopter and light aircraft flying from an airfield where air traffic control had been shut due to "staff shortages," according to U.K. media. Wreckage from both aircrafts has reportedly fallen on a family house in Buckinghamshire."

ThrowAwayYourTV's picture

Student and pilot, heli

Student and pilot, fixed wing.


any_mouse's picture

Just BTFD!

Whatever happened with the app that made Broccoli Man a star?

Novelty wore off and it's on the silicon scrap heap?

yogibear's picture

Broccoli Man is my hero.

He's been spot on!

macdavy's picture

Astrology for ZHers
Aries - your are at crossroad, what you chose will affect your future
Taurus - today is new day, what you decide will make all the difference
Gemini - Many paths lay ahead, how you navigate them will effect your destination
Cancer - The decision you make today, will untimely lead you to the choices you will have tomorrow
Leo - Your Future is unwritten, you be the author
Virgo - How you handle the events today will determine the events tomorrow
Libra - you could go to the left or the right, chose wisely
Scorpio - Many options lay ahead, pick the option you feel are best
Sagittarius - Tomorrow today becomes yesterday, be wise
Capricorn - the information you are given today, could effect positive or negative changes tomorrow
Aquarius - You have choices, only you can make them
Pisces - after today, what your decide will effect your choices tomorrow

Rex Andrus's picture

Once you've been an economist you can never go back to be an astrologer. Jump, Paul!

macdavy's picture

i thought they were the same thing

Sudden Debt's picture

They still can't figure out that inflation will push markets even way higher...

This game is a combination of factors

ZeroLounger's picture

Lance,thank you sir for your fine contributions.

warsev's picture

As a small-time personal investor I'm flummoxed. What to invest in when everything is already overvalued? And traditional measures of value are meaningless? Right now my money is sitting in cash.

Let it Go's picture

Time has a way of revealing certain realities but does so at its own choosing. The economy is far from a well-oiled and designed machine and in the end, we may find that it is not really completely under the control of those who have been placed in the driver's seat.

In a world where central banks have become so deeply involved in manipulating and distorting markets we find true price discovery no longer exist. The question remains how best to prepare for a economic meltdown. Expect both luck and caution to play a big role on our individual fortunes as we move through the financially violent period before us. More on this subject below.

 http://The Catalyst Of Our Economic Demise has Yet To Be Determined .html

hootowl's picture

"those who have been placed in the driver's seat.".......Are simply the corrupt/corruptible sociopathic goyim mudpuppets of The Tribe, the people who control all the (fiat) money of the world.

Less than .1% of the world's population controls ALL the money of the Western World.  Those who possess at least two living brain cells to rub together should know who they are.

hootowl's picture

The certain/inevitable economic collapse of the U.S., and ALL nations that have fallen prey to the Babylonian/Khazarian/Persian/Faux-Hebrw/debt-money/fractional-reserve/central banking fraud instituted by The Tribe was known, expected, and explained in detail in the Protocols of The Learned Elders of Zion published centuries ago.

Every step Proposed in The Protocols is clearly evidenced in our former history books and mathematically provable with Jr. high school math.  That is why the Libtard Proglodytes in the teaching profession are no longer allowed to teach real history and real economics in our failed public schools and once-great universities.  A student of real history who gets his/her hands on a copy of The Protocols will become a menace to the Tribe's ongoing plan for world tyranny,.....Ruled, of course, by The Tribe (international Banksters).

Beware of learning the truth.  You may be revealed as an enemy of The (Deep) State.